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At its Aug. 22 meeting, the Economic Development Committee declined to release $50,000 in City funds for the Technology Innovation Center (TIC or The Incubator), 820 Davis St. Though the Committee released $25,000 to TIC earlier this year, approval for this round of funding was withheld until last week’s meeting because the committee wanted to assess TIC’s completion of “a series of recommended tasks” it had outlined last May. Despite the City staff’s recommendation to release the remainder of the economic development grant, committee members declined to second the motion put forth by 7th Ward Alderman Jane Grover to approve the funding.

“My biggest issue is what are we paying for, what is the City getting out of this, and I just haven’t seen the return on investment,” said Ald. Coleen Burrus, 9th Ward, who sits on the Economic Development Committee.

The Committee’s decision to withhold the funding, which amounts to nearly half of the incubator’s annual budget, seemed to catch TIC’s leadership off-guard.

“There’s no consistent judgment, no consistent parameters, on who gets approved,” said Chuck Happ, TIC’s chairman. “Frankly, I’m done with the humiliation and scrutiny with the unfair process. … They make me feel like I’m trying to pick their pocket.”

Retention and Board

For the committee, there appear to be two main issues that need to be addressed: TIC’s ability to retain companies in Evanston once they leave the incubator and the composition of TIC’s board.

“They’ve created jobs and kept companies in Evanston,” said Ald. Grover. “I think the question for the committee is how do you measure that, how do you show that?” She said measuring occupancy and keeping a waiting list is not enough.

In a report submitted to the Committee, TIC states that since Jan. 1 it has attracted six new start-ups, which created 13 full-time jobs, and retained three former TIC companies and 19 total jobs in Evanston. In its entire history, the report stated that 24 TIC companies have remained in Evanston along with a total of 475 jobs.

“We have provided the City, I believe, with every datum they’ve ever asked for,” said Tim Lavengood, TIC’s executive director. He said the lack of a formal contract between TIC and the City has contributed to the friction. The center brings new companies into Evanston that grow, create jobs and attract investment, he said. “If there is a different return on investment that the City wants, it’s one of those things that hopefully, if we get to the point where there’s actually a contract, those things can be articulated,” said Mr. Lavengood.

Ald. Grover seemed to be looking for some articulation as well. “It’s not enough to throw at us all the statistics, but can they put it into a form that is a sales pitch?” she said.

The Committee would like to see more of TIC’s companies stay in Evanston when they leave the incubator. Both Mr. Happ and Mr. Lavengood said TIC makes a strong effort to keep their tenants in Evanston, many of which were attracted to TIC in the first place because of the City’s public transportation, major research university and convenient shopping. One of the biggest obstacles they cited, however, is the lack of local funding sources.

“If we’re doing our job, they increase their sales, they hire more people and they get funding. When they get funding, they move toward where it is,” said Mr. Happ. Whether that is Silicon Valley or downtown Chicago, he said, the companies go where the angel investors and venture capital dollars are. Mr. Happ said TIC is currently working to cultivate an Evanston-based investment group that is focused on keeping these businesses here.

For Ald. Burrus, the rate at which TIC moves companies through its incubator was also an issue.

“They should be pushing a lot more businesses out. Some of them have been there 5-10 years,” she said. “That’s running an office building, that’s not running an incubator.”

Mr. Happ said TIC’s annual turnover is about 25-30 percent. Some current tenants said a successful incubator is defined by more than the time it takes for companies to move on. “Time is one of the least important aspects, because you could say that an incubator should only be incubating for eight months, but maybe that company needed that ninth or tenth month or four years to be the next Groupon,” said Sam Safran, president of Design Factory International. He said he started his company, which links factories in Asia to American retailers, at the TIC in 2001 and is still one of its 34 companies.

“We’ve looked at office building space in Evanston, Highland Park, Chicago, all over,” he said. “There’s more commonality in this building than in just a typical office building. … Within less than 25 feet, I have absolutely the cream of the crop in services for my business.” The ability to have other likeminded entrepreneurs who are facing similar challenges is also a “tremendous asset,” he said.

The rapidly changing tech economy was another reason some cited for being with TIC for longer periods of time.

“TIC gives you the chance to try new business models,” said Richard Moy, managing director of Phora Group, which provides social integration solutions for businesses and was started at the center in 2003. “With the economy changing constantly, you have to be flexible in how you address that. And the TIC, being a very flexible environment, allows you to adjust to the changes in the market.”

TIC began as a joint venture between the City of Evanston and Northwestern University in 1986 in the now defunct Research Park. More than 300 companies have passed through its doors, including the online grocer, Peapod, and Leapfrog, the Evanston-based online marketer that has more than 100 employees. In 2010, TIC was named one of the “10 technology incubators changing the world” by Forbes.com.

Mr. Happ took over the incubator six years ago when, he said, it was nearly broke and on the verge of closing. Currently he said TIC offers its tenants rent at a reduced rate of $12 per square foot. TIC also offers short-term leases for small office space, which, he said, is crucial for start-ups that have little-to-no money, few employees and cannot afford to commit to a long-term lease. TIC offers networking meetings every Thursday and on-site, pro bono legal assistance once a week. They also help with business and marketing plans, as well as connect their tenants to accountants, real estate brokers and talent at Northwestern University.

“The resources are limited as far as things they want to do and what they can do, but … they work above and beyond their means,” said Tony O’Dell, president of Illumen, an interactive marketing and e-learning company that had been a tenant since 2005 until a few weeks ago, when it moved its nine employees a few floors above TIC.

The center’s economic development prospects aside, the committee’s decision to withhold City funding also appeared to be designed to instigate a shake-up in TIC’s leadership. Since the City began directly funding the incubator in 2010, a City staff person has been a member of TIC’s board. Nancy Radzevich, the economic development division manager, is the third person from the City to serve on TIC’s board. The rest of the board is comprised of Mr. Lavengood, Mr. Happ, and Mary Happ, Mr. Happ’s wife. Mr. Happ also owns the building at 820 Davis St.

“The board needs to be expanded to not just be the owner of the property and his wife and then the executive director. It needs to be a much more diverse board so there’s more oversight of the funding,” said Ald. Burrus.

“They have this idea that they’re just giving money to a landlord to keep a building full. Not one taxpayer dollar goes to rent and I don’t get paid,” said Mr. Happ.

One of the Committee’s 11 recommended tasks in May was for TIC to provide a plan to expand the board. Despite this and the fact that the City has someone on the board, the Committee’s decision seemed unexpected.

“I was quite taken by surprise that that happened in this public meeting, where [the City’s] board member was not present, nor was our chairman. I don’t know why we didn’t do it through the board,” said Mr. Lavengood.

Mr. Happ also expressed frustration. “All they said is they want City representation. We complied, and then we’ve had three members who don’t do work,” he said, adding, “They can’t complain about a board if they’ve had City representation for two years. It’s not fair.”

Mr. Happ said he is willing to expand the board and has identified a banker, a TIC alumnus and a commercial real estate broker as potential candidates.

Requests to interview Ms. Radzevich, the City’s board member, and Paul Zalmezak, economic development coordinator, were passed along to City Manager Wally Bobkiewicz, who said: “The Council’s view of accountability and measurability of results has changed. It’s not an insult … but really just a matter of having measurables.”

Future Returns

Mr. Happ said he has received overtures to move the incubator to Skokie or Chicago. Both TIC and City staff, however, expressed a willingness to try and work out these issues and continue their relationship.

“This is a natural partnership. … If we want this to be everyone’s focus – to be on economic growth in Evanston – I think a partnership with the City is mandatory,” said Mr. Lavengood.

“They have a long track record of being successful and we want to just continue to make sure they are successful,” said Mr. Bobkiewicz.

Without a formal partnership, however, Mr. Lavengood said Evanston would become less of a priority.

“If Evanston wants this kind of growth, Evanston has to realize they have to step up and pay for it, at least part of it. … They can’t expect that to be anybody else’s priority,” he said.

The future of the partnership seems to lie with the Economic Development Committee and whether TIC makes sufficient efforts, in the committee’s eyes, to retain its companies in Evanston and reform its board.

“Such good stuff is happening there at 820 Davis St. and because it’s receiving public money it has to have a strong sense of serving the Evanston community,” said Ald. Grover.